In-Sourcing

Globalization skeptics have long complained about the alleged out-sourcing of good, high-paying American jobs. But even globo-optimists, like Tom Friedman, have conceded that U.S. jobs are vulnerable with the rise of a flat world. In a 2006 essay in Foreign Affairs, Princeton economist and Obama adviser Alan Blinder argued that globalization would likely bring about a mass off-shoring of American jobs. Blinder later used Bureau of Labor Statistics data to estimate that some 30 to 40 million U.S. jobs, 22 to 29 percent of all, including significant numbers of jobs in knowledge work and high end services were "potentially off-shoreable."

International economist Richard Baldwin takes a close look at the actual figures and finds a very different trend. Examining IMF data on the dollar volume of trade in services originally compiled by economists, Mary Amiti and Shang-Jin Wei, Baldwin plots the dollar volume of out-sourced U.S. service work against the dollar-volume of service work that has been attracted to or in-sourced by the United States.As the chart shows, the U.S. is a net in-sourcer of service jobs, with the U.S. in-sourcing gap actually increasing over time. Based on this, Baldwin concludes that:

The US, as it turns out, is a net "insourcer". That is, the world sends more service sector jobs to the US than the US sends to the world, where the jobs under discussion involve trade in services of computing (which includes computer software designs) and other business services (which include accounting and other back-office operations. ... Blinder is right in that the US importing an ever-growing range of commercial services - or as he would say, the third industrial revolution has resulted in the offshoring of ever more service sector jobs. However, the US is also "insourcing" an ever-growing number of service sector jobs via its growing service exports. The startling fact is that not only is the trade not a one-way ticket to job destruction, the US is actually running a surplus.

The data only cover the period 1980 to 2003, so it is certainly possible that the trend-line has changed since then, but Baldwin argues that the logic of trade in services suggests this basic trend will continue.

Since services are highly differentiated products, and indivisibilities limit head-to-head competition, my guess is that we shall see a continuation of the trends in the chart. Lots more service jobs "offshored" and lots more "onshored". What governments should be doing is helping their service exporters to compete, not wringing their hands about one-way competition from low-wage nations.

Richard Florida is Co-founder and Editor at Large of CityLab.com and Senior Editor at The Atlantic. He isdirector of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU.
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